Aug 6, 2020
One more time about the correlation and Bitcoin for $100,000.
Since the beginning of 2020, more and more news from the financial markets have been published in the сrypto market. And this is not surprising — the situation on traditional markets that largely determines the movement of Bitcoin and the entire market this year. And there is every reason to believe that this will become even stronger in the future.
On the other hand, even stock markets with their century-old history don’t fit into any schemes. That’s why you shouldn’t expect some simple linear relationship between the price of Bitcoin and traditional assets to work in the young crypto market, which can move a couple of tens of millions in any direction.
However, this topic must be understood. Trading with the crypto currency, ignoring the situation on traditional markets — it’s like shooting at the sound in the darkness — you can get shot, but you have less chances. It’s much more convenient with the NOD, so let us highlight the correlation of Bitcoin with gold and the stock market.
In the previous article our author revealed how Bitcoin, stock indices and gold moved during 2019–2020. We see that there is no unambiguous scheme — gold and Bitcoin can show both forward and backward correlation.
At the end of 2018, Bitcoin was falling, and gold was rising.
February — May 2019 — gold falls, Bitcoin rises.
June 2019 — gold and Bitcoin are growing together.
August 2019 — December 2019 — Gold and Bitcoin are falling together.
December 2019 — mid February 2020 — Gold and Bitcoin grow together.
The second half of February — the correlation is lost. From February 15 to 24, gold rose sharply, updating its seven-year high, while Bitcoin fell. From February 24 to 28, both gold and Bitcoin fell. The third asset we look at is the sp500-rise all through 2019 and has been falling almost steeply since February 19, falling much harder than Bitcoin and gold.
My thoughts on the correlation of Bitcoin to other assets:
1. Correlation doesn’t imply a causal relationship.
The combined growth or decline of asset 1 and asset 2 doesn’t indicate that the former is due to the latter. The correlation indicates that under certain conditions the majority of market participants perform similar actions (buy or sell) with respect to asset 1 and asset 2. At the same time, the motives of these market participants may be quite different.
For example, conservative investors sell APPLe shares and buy gold to avoid losses when the stock market falls. Aggressive investors close the margin position at sp500 and purchase Bitcoin in order to get maximum profit. Motives are different ( some people run away from risk, others seek it), and the actions of some people are- buying gold or Bitcoin when the stock market falls.
2. The correlation between assets is highly dependent on the preliminary movement of these assets.
For example, since the beginning of the year gold has been going up almost without stopping. Buyers accumulated profit on long positions, and realized that the assets have been growing for quite a long time. This led to the fact that it included speculators for short-term profits. As soon as the growth stopped, they started fixing profits, which caused the gold to fall since February 24.
Gold — is a 100% protective asset. But now it has become speculative, so the rebounding growth was followed by profit taking and correction. Other protective assets (Swiss franc, yen), at this time showed growth against the dollar.
3. Factor, that affects a particular asset has priority over correlation.
If Bitcoin grows for a long time, expectations of correction increase among market participants, 10500 cannot pass, and then CME expiration and nervousness of participants on the background of the situation on the stock market approach, then in the short term it will go on to correction, so that at that moment it would not happen with gold.
If in February 2019 gold was falling on rumors about a pause in interest rates reduction in 2019, it didn’t prevent Bitcoin from breaking through 5000 at that time and moving to a powerful growth.
What do you expect from Bitcoin now? After all, there has never been a large-scale crisis during its existence (2009, when it first appeared, for obvious reasons we don’t think so). That is why we cannot determine on historical data how the main crypto currency will behave when stock markets break the bottom and national currencies will depreciate due to inflation (as it’s obvious that central banks will fight the crisis by increasing money supply).
Nevertheless, it’s very likely that demand for Bitcoin will grow strongly in the face of the economic crisis, the collapse of stock markets, inflation of national currencies. Confidence is based on data on the behavior of people in different countries in the situation of local economic crises.
Look which countries have the largest number of Bitcoin owners. First place is Turkey. From 2015 to 2019, the lira has fallen more than 3 times. Brazil — inflation and the collapse of the real. Argentina is already synonymous with the word “default”. Colombia — it has its own specifics). Due to its small size Lebanon didn’t get here, where in the conditions of problems with banks , Bitcoin course flew into space, Venezuela and Hong Kong during the protests.
This is enough to understand that in the event of serious problems in traditional markets, people have an increased interest in Bitcoin and tend to buy it at any price. After all, if people in Turkey, Argentina and Zimbabwe, having completely different living standards, economic conditions and the reasons for the crisis, are equally eager to buy Bitcoin, it’s obvious that people in different countries will do the same during a global crisis.
And Bitcoin is getting less and less…
So if the collapse on the stock goes up, everything goes to this scenario. (https://medium.com/the-capital/when-bitcoin-will-cost-100-000-b3f0ef8d1c2f)
Gold will also rise, but Bitcoin will overtake it by an order of magnitude due to limited supply and the FOMO crowd, which will go on a grand scale when Bitcoin shows steady growth amid falling all other assets.
But if somehow at the beginning of the week stock markets turn around or stabilize — what happens then?
Then Bitcoin will grow naturally — because of its advantages and limited supply. Given that the money supply will try to stop the collapse of the markets, it is also inevitable.
All this is a medium-term perspective. The horizon is 6–12 months. Short-term movements of Bitcoin don’t affect this scenario.
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